Many questions surrounded how Federal Reserve chair Jay Powell would frame his highly anticipated remarks at Jackson Hole on Friday, including the balance between tactical and strategic. In the event, Powell opted for a dual focus in what will be viewed as his second milestone speech, the first being his 2022 eight-minute remarks stressing forthcoming “pain” to the economy. 

First, he formalised the widely accepted view that “the time has come for policy to adjust” and that “the direction of travel is clear” and, second, he provided a historical assessment of the 2021-2024 inflation episode that now means that “his confidence has grown that inflation is on a sustainable path back to 2 per cent.”

This approach allows the Fed to retain considerable tactical and strategic optionality. In particular, the well-written Jackson Hole speech resisted the desire of many for Powell to guide on the size of the September cut in interest rates and, more importantly, the destination for these rates. Yet, ironically, the market’s immediate reaction was to push further the notion of aggressive interest rate cuts for a Fed that is still seen as a single-mandate central bank, but with the crucial qualification that it is now focused on avoiding higher unemployment rather than lowering inflation.